Is Komarkcorp Berhad (KLSE:KOMARK) Using Debt Sensibly?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Komarkcorp Berhad (KLSE:KOMARK) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Komarkcorp Berhad

What Is Komarkcorp Berhad's Debt?

As you can see below, at the end of December 2024, Komarkcorp Berhad had RM11.9m of debt, up from RM7.96m a year ago. Click the image for more detail. But on the other hand it also has RM24.3m in cash, leading to a RM12.4m net cash position.

How Strong Is Komarkcorp Berhad's Balance Sheet?

According to the last reported balance sheet, Komarkcorp Berhad had liabilities of RM19.0m due within 12 months, and liabilities of RM8.59m due beyond 12 months. Offsetting these obligations, it had cash of RM24.3m as well as receivables valued at RM9.99m due within 12 months. So it can boast RM6.73m more liquid assets than total liabilities.

This surplus strongly suggests that Komarkcorp Berhad has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Komarkcorp Berhad boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Komarkcorp Berhad will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Komarkcorp Berhad made a loss at the EBIT level, and saw its revenue drop to RM14m, which is a fall of 52%. To be frank that doesn't bode well.

So How Risky Is Komarkcorp Berhad?

Although Komarkcorp Berhad had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of RM1.8m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for Komarkcorp Berhad you should be aware of, and 2 of them are concerning.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.